SNAP Cuts, Lower Tax Refunds May Curtail Sales at Discount Chains

Executives warn that core shoppers may be feeling squeezed.

March 22, 2023

ALEXANDRIA, Va.—Discount chains like Dollar General and Big Lots are telling analysts that cuts to SNAP and lower tax refunds this year could hurt store sales.

According to Business Insider, 32 states saw the end of pandemic-related SNAP supplemental benefits this month. This comes after 18 other states dropped the benefits last year. At the same time, certain beefed-up tax credits are no longer available, which means many taxpayers will receive smaller tax refund checks. Both changes come as the government winds down pandemic-era policies, causing many retailers to worry about a slowdown in spending.

“We remain concerned about the lower-income customer, our core customer,” said Michael O’Sullivan, CEO Burlington. “In 2022, this customer group bore the brunt of the impact of inflation on real household incomes. We think the impact of inflation will moderate this year, but there are other factors that could hurt this customer, such as a rise in unemployment and the ending of expanded SNAP benefits.”

At Big Lots, nearly 80% of shoppers have a household income under $100,000. “At this point, 30% of that lower-household-income customer, their expenses today are greater than their income coming in,” said Bruce Thorn, CEO of Big Lots. “And 70% of them have curbed spending as a result.”

When tax refunds arrive this year, they’re expected to be 10% to 15% smaller than last year, and when combined with the reduced SNAP benefits, it further deteriorates the spending ability of households with lower income.

Most Dollar General outlets are in rural communities where consumers are “increasingly economically strained,” said John Garratt, president and CFO of Dollar General. “It’s possible that this could further pressure the low-income customer somewhat in the near term. We didn’t see an impact last year. But the customer is in a different place now.”

When the SNAP program was expanded in March 2020, all households were allowed to receive the maximum benefit rather than aid based on their income. That meant a household with one person went from receiving $23 a month to $281, according to Gina Plata-Nino, deputy director for SNAP at the Food Research & Action Center. With the recent changes, some households will have $258 less per month to spend on groceries.

A similar situation occurred with the Child Tax Credit, or CTC, and the Earned Income Tax Credit, both of which were enhanced as part of the Biden Administration’s first stimulus package. The CTC meant some families received up to $3,600 per child in 2021. But the tax-credit extension has expired, and the same families are eligible for $2,000 this year. The EITC, which aimed to provide relief for middle- and low-earners, was permanently expanded in 2021, but taxpayers will see smaller amounts this year. Benefits for eligible filers without children will go from $1,500 in 2021 to around $500 this year.

Numerator, a Chicago-based data and tech company, recently released Helping SNAP Consumers During Economic Headwinds, which examines the full impact of SNAP on modern consumers through the analysis of verified purchases by SNAP recipients.

According to the report, SNAP consumers make up nearly one-quarter (24%) of total CPG spend, and they vary their shopping locations. Compared with non-SNAP consumers, SNAP shoppers are 56% more likely to spend their money at dollar stores, 24% more likely at convenience stores and 12% more likely at mass retailers.

The report noted that 20% of SNAP recipients say they want grocery delivery services that make it easier for them to use their program benefits. Currently, 12.9% of SNAP consumers use Walmart+, followed by DoorDash DashPass (5%) and Albertsons Freshpass (4.3%).

When SNAP recipients want to cut spending, they pull back on snack purchases. Units purchased per household are down significantly in categories like popcorn (23.6% versus year ago), meat snacks (18%) and snack seeds, nuts and trail mixes (15.9%). SNAP households also are trading down to private label. Although unit sales are down, private-label products at Walmart, ALDI and Kirkland are outperforming branded CPGs.